The value of switching costs
We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We rst show that if all consumers have the same switching cost, then the intertemporal pro ts of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its pro ts increase as their presence hinders entrants who nd it more costly to attract high switching cost customers.
|Date of creation:||03 Feb 2010|
|Date of revision:||30 Oct 2012|
|Publication status:||Published in Journal of Economic Theory, vol. 148, n°3, mai 2013, p. 935-952.|
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